Rebuilding Banking Law: Banks as Public Utilities

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Since the 2008 financial crisis, the biggest banks have gotten even bigger, and the federal government has intervened on three additional occasions to backstop financial institutions. VPA’s Project on Networks, Platforms, and Utilities considers how NPU law and policy could be applied to the banking sector. 

In Rebuilding Banking Law: Banks as Public Utilities, Professors Morgan Ricks and Lev Menand argue that without a structural overhaul of banking regulations, the country will continue to see bank failures, followed by bailouts. Instead, they propose that banks should be treated as public utilities, like electricity and other essential services. They show that this was the original design of the banking laws – until portions were watered down or repealed starting in the 1980s. Ultimately, they argue that a modernized public utilities approach would “simplify regulations, reduce complexity, expand access and inclusion, promote economic equality, right-size the financial sector, and dramatically decrease the likelihood of future acute macroeconomic disasters.”

Ricks’s and Menand’s accompanying policy brief outlines a ten-point plan that policymakers can move toward a public utility framework for banking law. Highlights include:

  • Requiring All Depository Institutions to be Insured Member Banks
  • Reinstating Utility-Style Chartering for Banks and Separations between Banking and other Activities
  • Closing the Unauthorized Banking Loophole and the Bank Powers Loophole, and
  • Insuring all Deposits–and Requiring Banks to Pay for Deposit Insurance.

Rebuilding Banking Law: Banks as Public Utilities

Under the New Deal framework for money and payments—which had its roots in the National Bank Act of 1864—banks in the United States were governed in many respects as public utilities. Unfortunately, policymakers have steadily undermined and degraded key elements of this system and now its logic has been largely forgotten. This paper proposes a blueprint for reform, a New National Banking system. 

Read the paper